ICYMI, the Federal Reserve rate hike:
TD outline their key implications as follows:
- Is this the end? That was the question going into today’s announcement. With the Fed dropping its language on the need for more hikes, it signaled that it is moving to a meeting-by-meeting approach. This leaves its options open going forward.
- Although the Fed’s statement keeps the door open to further hikes, markets think that the Fed is done. The knee-jerk reaction to the announcement was a drop in Treasury yields and a depreciation in the U.S. Dollar. Markets are looking for the Fed to remain on hold through the summer before starting to cut rates as early as September. Approximately 75 bps in cuts are priced in over the back half of 2023. Although we too think the Fed is likely done with further rate hikes, we think September is too early for cuts. Given the lagged effects of the Fed’s past rate hikes and recent tightening in financial conditions, we think rate cuts are more likely to start at the very end of 2023 or early 2024.
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Friday music:
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